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Bitcoin’s role in Georgian economy

Georgian digital ecosystem is represented by miners, start-ups, infrastructure projects, programs supporting digital involvement, diverse digital products and services, growing incomes of Internet market, and increase of employment.

There are 329 organizations engaging in the e-communication field in Georgia. Their incomes are more than 1.3 billion GEL.  Revenues in the state budget from this sector reaches 299 million GEL (in 2017). 71.5% of Georgian families are supplied with the Internet. The country is at a high level of e-government development.  Innovative activities of companies are increasing. Georgian Internet market is presented by important attractiveness of investments as well as by export potential of e-commerce.

It is essential to note that in Georgia, both private and governmental sectores are using blockchain technology to the full. However, cryptotechnologies are adopted only by citizens and business sector.

Georgia is one of the first countries that is using Blockchain by registration of real estate. The innovative technology of Blockchain makes entries accessible, transparent, and even more secure worldwide.  

It should be highlighted that Georgia doesn’t stay behind the business competition of crypto industry, which is an important step forward to the digital development of the country, in terms of technological development, and Internet activities of citizens.  

On the world market of Bitcoin mining, Georgia is among the leader countries. Bitfury Group is the obvious example of the Bitcoin mining market in the country. In 2014, Blockchain service provider company – Bitfury Group established ‘Datacenter’ in Gori  (20 megawatt) for the mining process. Because of the attractive investment environment, the company launched the second ‘Datacenter’ (40 megawatt) in Tbilisi (Gldani district) in 2015. The company produces bitcoin mining infrastructure, and supports transactionsof crypto-currency. In 2016-2017, it mined about 15% of all bitcoins. It is operating in the USA, Iceland, London, Amsterdam, and Hong-Kong.

For the first time, throughout Transcaucasia, cryptocurrency terminals are placed in Georgia (Tbilisi), which belong to the company ‘TPS’. Through those terminals and the website, a consumer can buy and sell Bitcoin and Litcoin. It is planned to add purchase services of another crypto-currencies (including, Ripple, Bitcoin Cash, Etherium) too.

In sum, we regard the crypto industry with its technological and social-economic advantigies as well as with its challenges.

 

 Bitcoin Energy Consumption

Certainly, the cryptocurrency industry is power intensity, i.e. dependent on energy. One transaction of bitcoin mining consumes so many electricity as one Georgian family consumes in a month.

However, I should indicate that because mining process consumes high electricity, yet it is not bad. Of course, its disadvantages are numerous, but discussions about the high electricity consumption are political, and show only political challenges. For example, when many tourists visit a country with less developed economy, it increases consumption of electricity, food products, money supply, different kind of danger, etc. In this case we should not talk about demarketing, or regulation of tourist flows, because it is difficult to prevent problems. It is a challenge for the state; it should be ready for all possible scenarios.     

Last 3 years, total electricity consumption of the country has been increased, on average by 6,3% yearly, including consumption of high voltage by 12,6%, of middle voltage by 9,1%, and of low voltage (commercial sector) by 8,3%. Taking also into consideration the growing business sector, the mining process of crypto currency does not have an essential influence.

I justify the operationswith different economic mechanisms on the market. I positively assess forming the pricing policy based on the necessity of economic policy of the country. However, Georgia has enough potential to keep electricity prices affordable for its population.

At this stage, the mining process does not cause electricity problems, and rise in prices. Moreover, the biggest company in Georgian bitcoin mining market enjoys privileges for producing the mining process.

We should take into consideration that our country has a high potential of energy resources. Hence, increasing of energy consumption by the cryptocurrency industry does not diminish its importance.

Challenges and Opportunities of Cryptocurrency

I should notice that Georgian crypto market is viable, and highly profitable, and its main ‘product’ – cryptocurrency is considered as risky, unstable, speculative, and assets for a developing class. It has been met competition with securities and with gold (it has become as a saving means).

We need to take into consideration the fact that the citizens fear for using the crypto assets as savings and investment means, because their financial interests are not secured due to speculative character and legal challenges.

Unfortunately, there is only fragmented information in the country about the size of crypto market, and about its share in the economy because the cryptomarket is still young.

Certain studies confirm that recently many Georgian young people are engaging in crypto mining. It has become trendy in the society to have cryptocurrency (even members of the legislative body own the cryptocurrency).

According to ‘e-money’ (a company that enables consumers to monetize their bitcoins), the number of bitcoin users in Georgia has increased by 400% from 2015 to 2016, and by 130% from 2016 to 2017.

In sum, there are private and public societies formed in the country, which are users of crypto-currency. Forms of online transactions are widespread in the country. Mechanisms of digital payments are also developed. It is possible to trade products with crypto currency (in particular, by Bitcoin), as well asto exchange, keep, save, and invest in those investment instruments that are tied to bitcoin price. We should take into account innovative products of the Georgian financial sector (especially those of a bank sector), which has been developing hand in hand with the digital environment.  

It is also important to mention that the government sector watches the crypto market, and mining process. 

The National Bank of Georgia observes the system of crypto industry. The National Bank of Georgia implements an information policy concerning the danger of using virtual (cryptographic) currencies by citizens.  

In turn, an academic sector (including myself) studies and evaluates the crypto industry, digital monetary policy, mining process, and peculiarities of their development, in order to find ways in time for solutions to expected challenges.

In sum, free industrial zones, low taxes, highly qualified IT specialists, safety, presence of a calm and educated society increases the investment attractiveness of the digital environment in the country.    

In the country, a main challenge of the crypto market is an attitude and conditions formed towards it. Among them, we can notice problems of liquidity, legal recognition in public transactions, effectiveness of exchange means, vouching for private companies, safety of keeping, and value stability.  

Crypto-currency does not exert influence on national monetary system. Its reputation raises many questions in the Georgian society. It has a status of illegitimacy and of outsider. It is seen as digital financial pyramid. It is a digital asset and not a currency.

According to the constitution of the country, the only body that has authority for emission of money, defining its name and unit, is the National Bank of Georgia. Consequently, the Georgian society only recognizes money issued centralized by the National Bank (if it issues digital money in future), and it considers crypto-currencies issued by the private sector as a product, that has functions of money.

In this regard, we do not even consider it as a parallel strategic direction in the country. However, I think that the country faces a new reality because of rapid digital processes. Therefore, the government is active, and prepares strategically for global digital challenges.